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I Burberry (LSE: BRBY) share price has been a scare story for investors this year. As I write this, it’s down about 45% for the year and about 70% off its all-time high.
Is the stock – which is no longer part of the FTSE 100 index – should be considered a 2025 recovery game? Let’s talk.
The basics have changed
The last time I covered Burberry was in mid-July. And it’s fair to say that the basics have changed a lot since then.
Meanwhile, City analysts expected Burberry to post earnings per share (EPS) of 51.6p in the year ending 31 March 2025 (FY25) and 65.2p in the next financial year (FY26). In those figures, the price-to-earnings (P/E) ratios were 14 and 11, making the shares look cheap.
Today however, consensus earnings forecasts for those two financial years are just 3p and 27.5p. In other words, analysts reduced their forecasts surprisingly.
So now, we have P/E ratios of 260 and 28. Suddenly, the stock is not cheap at all.
I will point out that I highlighted the risk of a cut in benefits back in July. This is always a risk to be aware of when companies are struggling, and it is still a risk for Burberry’s shares today.
China is key to the 2025 recovery
Is there a chance of a share price recovery in 2025 though?
Definitely. But it is far from confirmed.
Much will depend on the Chinese economy, where Burberry has generated most of its sales (around 30%) in recent years. And there is little uncertainty on this front right now.
Recently, analysts at Barclays concluded that China may be “weak for a long time“. Their view was that many of the growth factors that draw the Chinese to the luxury goods market, such as high GDP growth and the strength of the real estate market, are not there.
It is worth noting that Barclays analysts have also expressed concern about Burberry’s ability to remain a luxury brand. In light of their concerns, they downgraded the stock to ‘Underweight’ (Sell) and lowered their price target for the share to 540p (around 30% below the current share price)
Of course, if the stimulus from the Chinese government has a positive impact on the economy and consumer spending, Barclays’ view on China could prove to be wrong. This situation may result in significant growth in Burberry’s sales, earnings, and share price.
At present, however, it is not easy to determine what lies ahead for China in the short term. Therefore, it is difficult to know whether Burberry shares can recover in 2025.
High risk, high reward
Given the uncertainty, I see Burberry shares as high risk, high reward play in the field of luxury goods.
If the luxury market in China takes off, stocks may face a sharp rebound. On the other hand, if China remains weak, stocks could continue to fall.
Personally, I will not buy shares myself. I am interested in getting more exposure to this industry, but I think I would prefer to go with a diversified company to reduce some product risk.
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